12 November 2008

US Treasury shifts priorities of TARP programme

Important markets for securitizing credit outside of the banking system also need support, Paulson said and called to address ‘global imbalances that fuelled recent excesses’ on the forthcoming G-20 meeting.

“Important markets for securitizing credit outside of the banking system also need support”, Treasury Secretary Paulson said announcing that funds would instead be used to mitigate avoidable foreclosures, further strengthen the financial system’s capital base and support the asset-backed securitization market.

 

“Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products”, he said. “This market, which is vital for lending and growth, has for all practical purposes ground to a halt.”

 

Paulson also said the administration will continue to use US$ 250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.

 

Paulson underlined that to adequately reform the US financial system, “we must address a number of significant issues, such as improving risk management practices, compensation practices, oversight of mortgage origination and the securitization process, credit rating agencies, OTC derivative market infrastructure and regulatory policies, practices and regimes in our respective countries.”

 

“We will examine how best to improve co-operation and information sharing to foster global financial system stability”, he noted. Persistent and growing global imbalances fueled a dramatic increase in capital flows, low interest rates, excessive risk taking and a global search for return, Paulson said.

 

“If we only address particular regulatory issues – as critical as they are – without addressing the global imbalances that fueled recent excesses, we will have missed an opportunity to dramatically improve the foundation for global markets and economic vitality going forward”, he noted.

 

Remarks Paulson

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